What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-13 compared with 2022-02-16 · 287 added, 420 removed, 1207 unchanged (37% of the section changed)

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To the Stockholders and Board of Directors

XPO Logistics, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of XPO Logistics, Inc.

We have audited the accompanying consolidated balance sheets of XPO, Inc.

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, cash flows, and changes in equity for each of the years in the three-year period ended December 31, 2022, and the related notes(collectively, the consolidated financial statements).

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the tax-free determination of the spin-off of the Company’s Logistics segment

As discussed in Note 1 to the consolidated financial statements, on August 2, 2021, the Company completed the previously announced spin-off of its Logistics segment into an independent public company.

The spin-off was accomplished by the distribution of 100% of the outstanding common stock of GXO Logistics, Inc.

Evaluation of the tax-free determination of the spin-off of the Company’s tech-enabled brokered transportation platform as a publicly traded company, RXO, Inc.

As discussed in Note 1 to the consolidated financial statements, on November 1, 2022, the Company completed the previously announced spin-off of RXO into an independent public company.

The spin-off was accomplished by the distribution of 100% of the outstanding common stock of RXO, Inc.

to the Company’s stockholders and was intended to qualify as tax-free to the Company and its stockholders for U.S.

federal income tax purposes.

We identified the evaluation of the spin-off as a tax-free transaction for U.S.

We identified the evaluation of the spin-off of RXO as a tax-free transaction for U.S.

federal income tax purposes to be a critical audit matter.

The evaluation of the Company’s interpretation and application of the Internal Revenue Code (Code) required complex auditor judgment and the need to involve tax professionals with specialized skills and knowledge to evaluate the U.S.

federal taxability of the spin-off.

federal taxability of the spin-off of RXO.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s income tax process, including a control related to Company’s evaluation of the spin-off as tax-free for U.S.

federal income tax purposes.

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• inspecting the tax opinions from the Company’s external tax advisors that management utilized in forming their conclusions on U.S.

federal income taxability of the spin-off, including certain interpretations of the Code

federal income taxability of the spin-off of RXO, including certain interpretations of the Code

• assessing the key facts, assumptions and representations provided by management and used by the Company’s external tax advisors when evaluating the U.S.

federal income taxability

federal income taxability of the spin-off of RXO.

Liabilities for self-insured claims

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We identified the assessment of the estimated liabilities for self-insured claims as a critical audit matter.

The evaluation of the uncertainty in the amounts that will ultimately be paid to settle these claims required subjective auditor judgment.

Assumptions that may affect the estimated liability of claims include the consideration of

historical cost experience, severity factors, and judgments about current and expected levels of cost per claims and retention levels that have uncertainty related to future occurrences or events and conditions.

The evaluation of the uncertainty in the amounts that will ultimately be paid to settle these claims required subjective

auditor judgment.

Assumptions that may affect the estimated liability of claims include the consideration of historical cost experience, severity factors, and judgments about current and expected levels of cost per claims and retention levels that have uncertainty related to future occurrences or events and conditions.

Additionally, the Company’s liabilities for self-insured claims included estimates for expenses of claims that have been incurred but have not been reported, and specialized skills were needed to evaluate the actuarial methods and assumptions used to assess these estimates.

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February 13, 2023

XPO Logistics, Inc.

Consolidated Balance Sheets

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Stockholders’ equity

Convertible perpetual preferred stock, $ 0.001 par value;

10 shares authorized;

— and 0.001 of

Series A shares issued and outstanding as of December 31, 2021 and 2020, respectively

Common stock, $ 0.001 par value;

300 shares authorized;

115 and 102 shares issued and

outstanding as of December 31, 2021 and 2020, respectively

115 shares issued and

outstanding as of December 31, 2022 and 2021

Additional paid-in capital 1,238 1,179

Retained earnings 43 868

Retained earnings (accumulated deficit) ( 4 ) 43

Accumulated other comprehensive loss ( 222 ) ( 84 )

Total stockholders’ equity before noncontrolling interests 1,138 2,709

Noncontrolling interests — 140

Total equity 1,012 1,138

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See accompanying notes to consolidated financial statements.

XPO Logistics, Inc.

Consolidated Statements of Income

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Depreciation and amortization expense 392 385 378

Goodwill impairment 64 — —

Transaction and integration costs 58 36 67

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Other income ( 55 ) ( 60 ) ( 47 )

Foreign currency (gain) loss ( 2 ) ( 3 ) 10

Debt extinguishment loss 39 54 —

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See accompanying notes to consolidated financial statements.

XPO Logistics, Inc.

Consolidated Statements of Comprehensive Income

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Net income $ 666 $ 341 $ 117

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Foreign currency translation gain (loss), net of tax effect of $( 15 ), $ — and $ 17

$ ( 69 ) $ ( 85 ) $ 112

Unrealized gain (loss) on financial assets/liabilities designated as hedging instruments, net of tax effect of $ 1 , $ — and $( 1 )

Unrealized loss on financial assets/liabilities designated as hedging instruments, net of tax effect of $( 1 ), $ 1 and $ —

( 2 ) ( 3 ) ( 2 )

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( 69 ) 34 ( 117 )

Other comprehensive income (loss) ( 54 ) ( 7 ) 8

Other comprehensive loss ( 140 ) ( 54 ) ( 7 )

Comprehensive income $ 526 $ 287 $ 110

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See accompanying notes to consolidated financial statements.

XPO Logistics, Inc.

Consolidated Statements of Cash Flows

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Depreciation, amortization and net lease activity 392 385 378

Goodwill impairment 64 — —

Stock compensation expense 77 31 37

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Debt extinguishment loss 39 54 —

Unrealized (gain) loss on foreign currency option and forward contracts 1 ( 1 ) 9

Gains on sales of property and equipment ( 60 ) ( 72 ) ( 90 )

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Proceeds from sale of property and equipment 88 131 175

Cash collected on deferred purchase price receivable — — 75

Proceeds from settlement of cross currency swaps 29 — —

Other — ( 3 ) 4

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Payment for tax withholdings for restricted shares ( 27 ) ( 28 ) ( 26 )

Distribution from GXO 794 — —

Distribution from RXO and GXO spins, net 312 794 —

Other 3 ( 5 ) 4

Net cash provided by (used in) financing activities from continuing

( 1,932 ) 1,154 ( 201 )

XPO Logistics, Inc.

Net cash provided by (used in) financing activities from continuing operations ( 861 ) ( 1,933 ) 1,154

Consolidated Statements of Cash Flows (continued)

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$ 470 $ 238 $ 1,668

Supplemental disclosure of cash flow information:

Supplemental disclosure of cash flow information from continuing operations:

Cash paid for interest 145 253 314

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See accompanying notes to consolidated financial statements.

XPO Logistics, Inc.

Consolidated Statements of Changes in Equity

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Purchase of noncontrolling interest — — — — ( 1 ) — — ( 1 ) ( 20 ) ( 21 )

Conversion of preferred stock to common stock ( 71 ) ( 40 ) 10,014 — 40 — — — — —

Preferred stock conversion — — — — — ( 22 ) — ( 22 ) — ( 22 )

Retirement of common stock — — ( 1,715 ) — ( 114 ) — — ( 114 ) — ( 114 )

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Net income — — — — — 336 — 336 5 341

Other comprehensive income (loss) — — — — — — ( 13 ) ( 13 ) 6 ( 7 )

Other comprehensive loss — — — — — — ( 52 ) ( 52 ) ( 2 ) ( 54 )

Spin-off of GXO — — — — ( 1,199 ) ( 1,161 ) 126 ( 2,234 ) ( 40 ) ( 2,274 )

Exercise and vesting of stock compensation awards — — 392 — 2 — — 2 — 2

Tax withholdings related to vesting of stock compensation awards — — — — ( 28 ) — — ( 28 ) — ( 28 )

Purchase of noncontrolling interests — — — — ( 1 ) — — ( 1 ) ( 20 ) ( 21 )

Issuance of common stock — — 2,875 — 384 — — 384 — 384

Conversion of preferred stock to common stock ( 1 ) ( 1 ) 145 — 1 — — — — —

Preferred stock conversion — — — — — ( 22 ) — ( 22 ) — ( 22 )

Retirement of common stock — — ( 1,715 ) — ( 114 ) — — ( 114 ) — ( 114 )

Purchase of noncontrolling interests — — — — ( 34 ) — — ( 34 ) ( 100 ) ( 134 )

Dividend declared — — — — — — — — ( 3 ) ( 3 )

Exercise of warrants — — 9,215 — — — — — — —

Stock compensation expense — — — — 52 — — 52 — 52

Adoption of new accounting standard and other — — — — 7 ( 4 ) — 3 — 3

Other — — 58 — 3 — — 3 — 3

Balance as of December 31, 2021 — $ — 114,737 $ — $ 1,179 $ 43 $ ( 84 ) $ 1,138 $ — $ 1,138

XPO Logistics, Inc.

Consolidated Statements of Changes in Equity (continued)

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Series A Preferred Stock Common Stock

(Shares in thousands, dollars in millions) Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total XPO Stockholders’

(Shares in thousands, dollars in millions) Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Total XPO Stockholders’

Equity Non-controlling Interests Total Equity

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Other comprehensive loss — — — — — — ( 140 ) ( 140 ) — ( 140 )

Spin-off of GXO — — — — ( 1,199 ) ( 1,161 ) 126 ( 2,234 ) ( 40 ) ( 2,274 )

Spin-off of RXO — — — — — ( 713 ) 2 ( 711 ) — ( 711 )

Exercise and vesting of stock compensation awards — — 698 — — — — — — —

Tax withholdings related to vesting of stock compensation awards — — — — ( 23 ) — — ( 23 ) — ( 23 )

Issuance of common stock — — 2,875 — 384 — — 384 — 384

Conversion of preferred stock to common stock ( 1 ) ( 1 ) 145 — 1 — — — — —

Purchase of noncontrolling interests — — — — ( 34 ) — — ( 34 ) ( 100 ) ( 134 )

Dividend declared — — — — — — — — ( 3 ) ( 3 )

Exercise of warrants — — 9,215 — — — — — — —

Stock compensation expense — — — — 77 — — 77 — 77

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See accompanying notes to consolidated financial statements.

XPO Logistics, Inc.

Notes to Consolidated Financial Statements

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Nature of Operations

XPO Logistics, Inc., together with its subsidiaries (“XPO” or “we”), is a leading provider of freight transportation services.

We use our proprietary technology to move goods efficiently through our customers’ supply chains, primarily by providing less-than-truckload (“LTL”) and truck brokerage services.

XPO, Inc., together with its subsidiaries (“XPO” or “we”), is a leading provider of freight transportation services.

We use our proprietary technology to move goods efficiently through our customers’ supply chains in North America and Europe.

See Note 4—Segment Reporting and Geographic Information for additional information on our operations.

On August 2, 2021, we completed the previously announced spin-off of our Logistics segment in a transaction intended to qualify as tax-free to XPO and our stockholders for U.S.

federal income tax purposes, which was accomplished by the distribution of 100 % of the outstanding common stock of GXO Logistics, Inc.

(“GXO”) to XPO stockholders.

XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on July 23, 2021, the record date for the distribution.

XPO does not beneficially own any shares of GXO’s common stock following the spin-off.

GXO is an independent public company trading under the symbol “GXO” on the New York Stock Exchange.

The historical results of operations and the financial position of our Logistics segment for periods prior to the spin-off are presented as discontinued operations in these consolidated financial statements.

Strategic Actions

In March 2022, our Board of Directors approved a strategic plan for the spin-off of our tech-enabled brokered transportation platform as a new public company, separating it from our LTL business in North America;

which was completed in 2022.

Additionally, the plan included the sale of our intermodal operation, which was also completed in 2022;

and the intended divestiture of our European business.

There can be no assurance that the divestiture will occur, or of the terms or timing of a transaction.

On November 1, 2022, we completed the spin-off of our tech-enabled brokered transportation platform as a publicly traded company, RXO, Inc.

The transaction is intended to be tax-free to XPO and our shareholders for U.S.

federal income tax purposes.

The spin-off was accomplished by the distribution of 100 % of the outstanding common stock of RXO to XPO shareholders.

RXO is an independent public company trading under the symbol “RXO” on the New York Stock Exchange.

In addition to the transactions related to our March 2022 strategic plan, we completed the spin-off of our logistics segment as GXO Logistics, Inc.

(“GXO”) on August 2, 2021.

The historical results of operations and the financial positions of GXO, RXO and our intermodal operation are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

The intermodal operation qualified to be accounted for as a discontinued operation after the spin-off of RXO because the sale of the intermodal operation and RXO were part of one strategic plan of disposal.

For information on our discontinued operations, see Note 3—Discontinued Operations.

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We prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions.

Following the spin-off, we adopted a new format for our Consolidated Statements of Income to separately present depreciation and amortization expense, transaction and integration costs and restructuring costs from other operating expenses.

We have recast prior year amounts to conform to the current year’s presentation.

Consolidation

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We do not have implicit support arrangements with the VIE.

We consolidate the VIE, which is comprised of the special purpose entity related to the European Trade Securitization Program discussed below in this Note and in Note 12—Debt.

consolidate the VIE, which is comprised of the special purpose entity related to the European trade securitization program discussed below.

We have a controlling financial interest in entities generally when we own a majority of the voting interest.

The noncontrolling interests reflected in our consolidated financial statements primarily related to a minority interest in XPO Logistics Europe SA (“XPO Logistics Europe”), a business we acquired majority ownership of in 2015.

2021, we completed a buy-out offer and squeeze-out for the remaining 3 % of XPO Logistics Europe that we did not already own at a cost of $ 128 million plus expenses.

Previously, in 2020 and 2019, we purchased shareholders’ noncontrolling interests in XPO Logistics Europe for € 17 million (approximately $ 21 million) and € 234 million (approximately $ 258 million), respectively.

In 2021, we completed a buy-out offer and squeeze-out for the remaining 3 % of XPO Logistics Europe that we did not already own.

Significant Accounting Policies

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A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied.

We generate revenue by providing less-than-truckload, truck brokerage and other transportation services for our customers.

We generate revenue by providing less-than-truckload and other transportation services for our customers.

Additional services may be provided to our customers under their transportation contracts, including unloading and other incidental services.

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We consider all highly liquid investments with an original maturity of three months or less on the date of purchase to be cash equivalents.

As of December 31, 2021, 2020 and 2019, our restricted cash included in Other long-term assets on our Consolidated Balance Sheets was $ 10 million, $ 11 million and $ 10 million, respectively.

As of December 31, 2022, 2021 and 2020, our restricted cash included in Other long-term assets on our Consolidated Balance Sheets was $ 10 million.

Accounts Receivable and Allowance for Credit Losses

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In determining the allowance for credit losses, we consider historical collection experience, the age of the accounts receivable balances, the credit quality and risk of our customers, any specific customer collection issues, current economic conditions, and other factors that may impact our customers’ ability to pay.

Commencing in 2020 and in accordance with Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”, we also consider reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining our allowance for credit losses.

We also consider reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining our allowance for credit losses.

We write off accounts receivable balances once the receivables are no longer deemed collectible.

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Write-offs, less recoveries, and other adjustments ( 20 ) ( 17 ) ( 32 )

Cumulative effect adjustment for adoption of ASU 2016-13 — 4 —

Adoption of new accounting standard — — 4

Ending balance $ 43 $ 36 $ 33

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We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows.

We also sell trade accounts receivable under a securitization program described below.

We also sell trade accounts receivable under a securitization program for our European transportation business.

We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.

Our European business participates in a trade receivables securitization program co-arranged by two European banks (the “Purchasers”).

Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO sells trade receivables that originate with wholly-owned subsidiaries in the United Kingdom and France to unaffiliated entities managed by the Purchasers.

The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities.

The program expires in July 2024.

Under the trade receivables securitization program, a wholly-owned bankruptcy-remote special purpose entity of XPO sells trade receivables that originate with wholly-owned subsidiaries to unaffiliated entities.

The program expires in July 2024 and contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.

We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred.

For these transfers, the receivables are removed from our Consolidated Balance Sheets at the date of transfer.

The fair value of any servicing assets and liabilities is immaterial.

Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Consolidated Balance Sheets.

See Note 12—Debt for additional information on these borrowings.

The maximum amount of net cash proceeds available at any one time under the securitization program, inclusive of any unsecured borrowings, is € 200 million (approximately $ 227 million as of December 31, 2021).

Prior to July 2021, when the securitization program was amended in connection with the spin-off, the maximum amount available was € 400 million.

As of December 31, 2021, the maximum amount available under the program was utilized.

The maximum amount of net cash proceeds available at any one time under our securitization program, inclusive of any unsecured borrowings, is € 200 million (approximately $ 214 million as of December 31, 2022).

As of December 31, 2022, € 1 million (approximately $ 2 million) was available under the program, subject to having sufficient receivables available to sell and with consideration to amounts previously sold.

The weighted average interest rate was 1.47 % as of December 31, 2022.

Charges for commitment fees, which are based on a percentage of available amounts, and charges for administrative fees were not material to our results of operations for the years ended December 31, 2021, 2020 and 2019.

Information related to the trade receivables sold was as follows:

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1,744 1,726 1,377

Deferred purchase price

Factoring programs

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Cash consideration

(1) Information for the years ended December 31, 2021, 2020 and 2019 exclude the impact of the Logistics segment.

In addition to the cash considerations referenced above, we received $ 75 million in the year ended December 31, 2019, for the realization of cash on the deferred purchase price receivable for our prior securitization program.

Property and Equipment

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Costs incurred during the application development stage are capitalized and included in property and equipment.

Capitalized software also includes the fair value of acquired internally-developed technology.

Capitalized software also includes the fair value of acquired internal-use technology.

We compute depreciation expense on a straight-line basis over the estimated useful lives of the assets as follows:

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Term of lease to 40 years

Vehicles, containers, tractors, trailers and tankers

3 to 15 years

Rail cars and chassis

15 to 30 years

Vehicles, tractors and trailers 3 to 14 years

Machinery and equipment

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We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options.

We exclude variable lease payments (such as payments based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability.

We exclude variable lease payments (such as payments not based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability.

We recognize leases with an initial term of 12 months or less as lease expense over the lease term and those leases are not recorded on our Consolidated Balance Sheets.

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The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors.

For our 2021 goodwill assessment, we performed a step-zero qualitative analysis for our three reporting units.

For our 2022 and 2021 annual goodwill assessments, which were performed as of August 31, we performed a step-zero qualitative analysis for each of the three reporting units that existed at the time of the assessments.

Based on the qualitative assessments performed, we concluded that it was not more-likely-than-not that the fair value of each of our reporting units was less than their carrying amounts and, therefore, further quantitative analysis was not performed, and we did not recognize any goodwill impairment.

For our 2020 goodwill assessment, we performed a quantitative analysis for the five reporting units that existed at the time of the assessment using a combination of income and market approaches with the assistance of a third-party valuation appraiser.

As of August 31, 2020, we completed our annual impairment test for goodwill with all of our reporting units having fair values in excess of their carrying values, resulting in no impairment of goodwill.

Our number of reporting units decreased from five in 2020 to three in 2021 as a result of the spin-off and other organizational changes.

In the fourth quarter of 2022 and in connection with the RXO spin-off, we performed additional impairment tests because the number of our reporting units increased from three to five to reflect our new internal organization.

Specifically, whereas our European Transportation business was previously considered a single reporting unit, after the spin-off of RXO, it was determined that the European Transportation business was comprised of four reporting units.

As a result, in the fourth quarter, we tested each of the four new reporting units for potential impairment.

A quantitative test was performed for each of these four new reporting units using a combination of income and market approaches and we recorded an aggregate impairment charge of $ 64 million related to two of these new reporting units.

The income approach of determining fair value is based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.

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We amortize intangible assets on a straight-line basis or on a basis consistent with the pattern in which the economic benefits are realized.

The estimated useful life for customer relationships is 5 to 16 years.

The estimated useful life for unamortized customer relationships at December 31, 2022 is 14 to 16 years.

Accrued Expenses

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Accrued transportation and facility charges 226 272

Accrued insurance claims 111 82

Accrued taxes 82 81

Other accrued expenses 61 67

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Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels.

Changes in these assumptions and factors can impact actual costs paid to settle the claims and those amounts may be different than estimates.

Changes in these assumptions and factors can impact actual costs paid to settle the claims and those amounts may be different than our estimates.

Advertising Costs

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( 85 ) ( 3 ) 34 2 ( 52 )

Spin-off of GXO 41 — 82 3 126

As of December 31, 2021 ( 52 ) — ( 32 ) — ( 84 )

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( 69 ) ( 2 ) ( 69 ) — ( 140 )

Spin-off of GXO 41 — 82 3 126

Spin-off of RXO 2 — — — 2

As of December 31, 2022 $ ( 119 ) $ ( 2 ) $ ( 101 ) $ — $ ( 222 )

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We use judgment and estimates in evaluating our tax positions.

Evaluating our tax positions would include but not be limited to our tax positions on internal restructuring transactions as well as the spin-off of GXO.

Evaluating our tax positions would include but not be limited to our tax positions on internal restructuring transactions as well as the spin-offs of RXO and GXO.

Valuation allowances are established when, in our judgment, it is more likely than not that our deferred tax assets will not be realized based on all available evidence.

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We convert foreign currency transactions recognized on our Consolidated Statements of Income to USD by applying the exchange rate prevailing on the date of the transaction.

Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in Foreign currency (gain) loss on our Consolidated Statements of Income.

Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in Other income on our Consolidated Statements of Income.

Fair Value Measurements

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December 31, 2021 181 181 181

The decrease in cash equivalents from December 31, 2020 to December 31, 2021 was primarily due to the redemption of our senior notes due 2022, 2023 and 2024 and the repayment of borrowings under our revolving loan credit agreement (the “ABL Facility”) in 2021.

For further information, see Note 12—Debt.

Derivative Instruments

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Gains and losses on cash flow hedges and net investment hedges representing hedge components excluded from the assessment of effectiveness will be amortized into Interest expense on our Consolidated Statements of Income in a systematic manner.

Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings and are recorded in Foreign currency (gain) loss on our Consolidated Statements of Income.

Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings and are recorded in Other income on our Consolidated Statements of Income.

Defined Benefit Pension Plans

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Assumptions include discount rates, inflation rates, expected long-term rate of return on plan assets, mortality rates, and other factors.

The assumptions used in recording the projected benefit obligation and fair value of plan assets represent our best estimates based on available information regarding historical experience and factors that may cause future expectations to differ.

cause future expectations to differ.

Our obligation and future expense amounts could be materially impacted by differences in actual experience or changes in assumptions.

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Adoption of New Accounting Standard

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” The ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The ASU also clarifies and amends existing guidance to enhance consistency and comparability among reporting entities.

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring annual disclosure of:

(i) the types of assistance received;

(ii) an entity’s accounting for the assistance;

and (iii) the effect of the assistance on the entity’s financial statements.

We adopted this standard on January 1, 2022, on a prospective basis.

The adoption did not have a material effect on our consolidated financial statements.

The adoption did not have a material impact on our financial statement disclosures.

Accounting Pronouncements Issued but Not Yet Effective

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring disclosure of (i) the types of assistance received, (ii) an entity’s accounting for the assistance and (iii) the effect of the assistance on the entity’s financial statements.

This ASU is effective for fiscal years beginning after December 15, 2021.

In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations.” The ASU increases the transparency surrounding supplier finance programs by requiring the buyer to disclose information on an annual basis about the key terms of the program, the outstanding obligation amounts as of the end of the period, a rollforward of such amounts, and the balance sheet presentation of the related amounts.

Additionally, the obligation amount outstanding at the end of the period must be disclosed in interim periods.

The amendments are effective for fiscal years beginning after December 15, 2022, except for the requirement to disclose the rollforward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

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The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform.

The amendments are elective and are effective upon issuance through December 31, 2022.

We are currently evaluating the impact of the new guidance.

The amendments are elective and are effective upon issuance.

In December 2022, the FASB issued ASU 2022-06, “Reference rate reform (Topic 848):

Deferral of the sunset date of Topic 848” which defers the expiration date for Topic 848 from December 31, 2022 until December 31, 2024.

At December 31, 2022, our revolving loan credit agreement (the “ABL Facility”) and the senior secured term loan credit agreement, as amended (the “Term Loan Facility”), provide for an interest rate based on LIBOR.

In February 2023, we amended the terms of our ABL, including transitioning the interest rate from LIBOR to other base rates, and we expect to similarly modify the interest rate basis in the Term Loan Facility in 2023.

We do not expect the modifications of these facilities to have a material impact on our consolidated financial statements.

Discontinued Operations

As discussed above, on August 2, 2021, we completed the spin-off of our Logistics segment.

In July 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO of $ 794 million, which we used to repay a portion of our outstanding borrowings.

For further information, see Note 12—Debt.

During the year ended December 31, 2021, we incurred approximately $ 125 million of costs related to the spin-off, of which $ 101 million are reflected within income from discontinued operations in our Consolidated Statements of Income.

The following table summarizes the financial results from discontinued operations of GXO:

As discussed above, the results of RXO, intermodal and GXO are presented as discontinued operations.

The following table summarizes the results of operations from discontinued operations:

Years Ended December 31,

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Revenue $ 4,403 $ 10,200 $ 10,374

Cost of transportation and services (exclusive of depreciation and

amortization)

3,334 5,281 4,065

Direct operating expense (exclusive of depreciation and

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Depreciation and amortization expense 67 276 388

Gain on sale of business ( 430 ) — —

Transaction and other operating costs 125 134 67

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— ( 5 ) ( 10 )

Net income from discontinued operations attributable to GXO $ 13 $ 120 $ 178

The following table summarizes the assets and liabilities from discontinued operations of GXO:

Net income from discontinued operations attributable to

discontinued entities

$ 482 $ 240 $ 217

During the years ended December 31, 2022 and 2021, we incurred approximately $ 152 million and $ 125 million, respectively, of costs related to the spin-offs, of which $ 120 million and $ 101 million, respectively, are reflected within income from discontinued operations in our Consolidated Statements of Income.

The following table summarizes the assets and liabilities from discontinued operations:

(In millions) 2021

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Operating lease assets 210

Goodwill 2,063

Identifiable intangible assets, net 110

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Accrued expenses 307

Short-term borrowings and current finance lease liabilities 57

Short-term operating lease liabilities 63

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Total current liabilities of discontinued operations 984

Long-term debt and finance lease liabilities 129

Deferred tax liability 69

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Total long-term liabilities of discontinued operations $ 281

Prior to the spin-off of GXO, the U.K.

pension plan was sold to a GXO entity.

For further information, see Note 13—Employee Benefit Plans.

In connection with the spin-off, we entered into a separation and distribution agreement as well as various other agreements with GXO that provide a framework for the relationships between the parties going forward, including, among others, an employee matters agreement (“EMA”), a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO will continue to provide certain services for a period of time specified in the applicable agreement to GXO following the spin-off.

In 2022, RXO completed debt offerings and used the net proceeds to fund a cash payment from RXO to XPO of $ 446 million, which we used to repay a portion of our outstanding borrowings and fund any related fees and expenses.

Additionally, in 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO of $ 794 million, which we used to repay a portion of our outstanding borrowings.

For further information, see Note 12—Debt.

Prior to the spin-off of GXO, the pension plan for some employees in the United Kingdom was sold to a GXO entity and approximately $ 82 million of AOCI, net of tax, was transferred to GXO.

In connection with both spin-offs, we entered into separation and distribution agreements as well as various other agreements that provide a framework for the relationships between the parties going forward, including, among others, an employee matters agreement (“EMA”), a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO agreed to provide certain services for a period of time specified in the applicable agreement following the spin-offs.

The impact of these services on the consolidated financial statements was immaterial.

Additionally, in accordance with these agreements, GXO has agreed to indemnify XPO for certain payments XPO makes with respect to certain self-insurance matters that were incurred by GXO prior to the spin-off and remain obligations of XPO.

The receivable and reserve for these matters was approximately $ 23 million and $ 21 million, respectively, as of December 31, 2021.

The receivable and reserve for these matters was approximately $ 17 million and $ 16 million, respectively, as of December 31, 2022 and $ 23 million and $ 21 million, respectively, as of December 31, 2021.

Segment Reporting and Geographic Information

In connection with the spin-off, we revised our reportable segments to reflect how our chief operating decision maker (“CODM”) makes decisions related to resource allocation and segment performance.

Prior to the spin-off, we had two reportable segments:

Transportation and Logistics.

Following the spin-off, we have two reportable segments:

(i) North American LTL and (ii) Brokerage and Other Services.

In our North American LTL segment, we provide our customers with geographic density and day-definite regional, inter-regional and transcontinental LTL freight services.

Our services include cross-border U.S.

service to and from Mexico and Canada, as well as intra-Canada service.

In our Brokerage and Other Services segment, shippers create the truckload demand and we place their freight with qualified carriers, pricing our service on either a spot or contract basis.

Our Brokerage and Other Services segment also includes last mile logistics for heavy goods sold through e-commerce, omnichannel retail and direct-to-consumer channels.

Several other non-core brokered freight transportation modes are included in our Brokerage and Other Services segment, as well as our European transportation offerings.

Some of our operating units provide services to our other operating units outside of their reportable segment.

Billings for such services are based on negotiated rates and are reflected as revenues of the billing segment.

We adjust these rates from time to time based on market conditions.

We eliminate intersegment revenues and expenses in our consolidated results.

We are organized into two reportable segments:

North American LTL, the largest component of our business, and European Transportation.

In the fourth quarter of 2022 and in connection with the RXO spin-off, we revised our reportable segments to reflect our new internal organization.

Prior to the RXO spin-off, we had two reportable segments:

North American LTL and Brokerage and Other Services.

In our asset-based North American LTL segment, we provide shippers with geographic density and day-definite domestic and cross-border services to the U.S., as well as Mexico, Canada and the Caribbean.

Our North American LTL segment also includes the results of our trailer manufacturing operations.

Prior to the RXO spin-off, the trailer manufacturing operations were included in our Brokerage and Other Services segment.

In our European Transportation segment, we serve a large base of customers with consumer, trade and industrial markets.

We offer dedicated truckload, LTL, truck brokerage, managed transportation, last mile, freight forwarding and multimodal solutions, such as road-rail and road-short sea combinations.

Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to our reporting segments.

Our CODM regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance.

Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance.

We include items directly attributable to a segment, and those that can be allocated on a reasonable basis, in segment results reported to the CODM.

We do not provide asset information by segment to the CODM.

During the third quarter of 2021, our CODM began evaluating segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which we define as income (loss) from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, litigation settlements for significant matters, transaction and integration costs, restructuring costs and other adjustments.

Prior to the change in our reporting segments in the third quarter of 2021, our CODM used operating income as the measure of segment profit (loss).

Prior period segment disclosures have been recast to conform to the current period presentation.

Our CODM evaluates segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which we define as income (loss) from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, goodwill impairment charges, transaction and integration costs, restructuring costs and other adjustments.

Selected financial data for our segments is as follows:

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North American LTL $ 4,645 $ 4,125 $ 3,546

Brokerage and Other Services 8,907 6,800 7,041

Eliminations ( 219 ) ( 140 ) ( 151 )

European Transportation 3,073 3,077 2,622

Total $ 7,718 $ 7,202 $ 6,168

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North American LTL $ 1,012 $ 906 $ 764

Brokerage and Other Services 547 284 406

European Transportation 169 165 87

Corporate ( 184 ) ( 259 ) ( 242 )

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Depreciation and amortization expense 392 385 378

Unrealized (gain) loss on foreign currency option and

forward contracts

Litigation settlements 31 — —

Goodwill impairment (1)

Transaction and integration costs (2)

Restructuring costs (3)

Other 1 — ( 2 )

Income (loss) from continuing operations $ 184 $ 96 $ ( 110 )

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North American LTL $ 239 $ 227 $ 225

Brokerage and Other Services 240 229 220

European Transportation 128 140 128

Corporate 25 18 25

Total $ 392 $ 385 $ 378

(1) Transaction and integration costs for 2021 and 2020 are primarily comprised of third-party professional fees related to strategic initiatives, including the spin-off of the Logistics segment, as well as retention awards paid to certain employees.

Additionally, transaction and integration costs for 2020 included professional fees related to our previously announced exploration of strategic alternatives that was terminated in March 2020.

Transaction and integration costs for 2021 and 2020 include $ 1 million and $ 5 million, respectively, related to our North American LTL segment;

$ 16 million and $ 16 million, respectively, related to our Brokerage and Other Services segment and $ 20 million and $ 54 million, respectively, related to Corporate.

(1) See Note 9— Goodwill for further information on the impairment charge.

(2) Transaction and integration costs for 2022 are primarily comprised of stock-based compensation and third-party professional fees related to strategic initiatives.

Transaction and integration costs for 2021 are primarily comprised of third-party professional fees related to strategic initiatives as well as retention awards paid to certain employees.

Transaction and integration costs for 2020 included professional fees related to our previously announced exploration of strategic alternatives that was terminated in March 2020.

Transaction and integration costs for 2022, 2021 and 2020 include $ 3 million, $ 1 million and $ 5 million, respectively, related to our North American LTL segment;

$ 6 million, $ 14 million and $ 8 million, respectively, related to our European Transportation segment and $ 49 million, $ 21 million and $ 54 million, respectively, related to Corporate.

(3) See Note 6— Restructuring Charges for further information on our restructuring actions.

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Disaggregation of Revenues

We disaggregate our revenue by geographic area and service offering.

Our revenue disaggregated by geographical area, based on sales office location, was as follows:

Our revenue disaggregated by geographic area based on sales office location was as follows:

Year Ended December 31, 2022

(In millions) North

LTL Brokerage and Other Services Eliminations Total

LTL European Transportation Total

United States $ 4,549 $ — $ 4,549

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Europe (excluding France and United Kingdom) — 867 867

Other — 133 — 133

Total $ 4,645 $ 3,073 $ 7,718

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(In millions) North

LTL Brokerage and Other Services Eliminations Total

LTL European Transportation Total

United States $ 4,036 $ — $ 4,036

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Europe (excluding France and United Kingdom) — 844 844

Other — 47 — 47

Total $ 4,125 $ 3,077 $ 7,202

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(In millions) North

LTL Brokerage and Other Services Eliminations Total

LTL European Transportation Total

United States $ 3,468 $ — $ 3,468

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Europe (excluding France and United Kingdom) — 739 739

Other — 20 — 20

Total $ 3,546 $ 2,622 $ 6,168

Our revenue disaggregated by service offering was as follows:

Years Ended December 31,

(In millions) 2021 2020 2019

North America:

$ 4,192 $ 3,575 $ 3,841

Truck brokerage 2,749 1,684 1,372

Last mile 1,016 908 873

Other brokerage (2)

2,025 1,564 1,853

Total North America 9,982 7,731 7,939

Europe 3,077 2,622 2,923

Eliminations ( 253 ) ( 154 ) ( 181 )

Total $ 12,806 $ 10,199 $ 10,681

(1) Less-Than-Truckload revenue is before intercompany eliminations and includes revenue from the Company’s trailer manufacturing business.

(2) Other brokerage includes intermodal and drayage, expedite, freight forwarding and managed transportation services.

Freight forwarding includes operations conducted outside of North America but managed by our North American entities.

Performance Obligations

Remaining performance obligations represent firm contracts for which services have not been performed and future revenue recognition is expected.

As permitted in determining the remaining performance obligation, we omit obligations that:

(i) have original expected durations of one year or less or (ii) contain variable consideration.

On December 31, 2021, the fixed consideration component of our remaining performance obligation was approximately $ 124 million, and we expect approximately 86 % of that amount to be recognized over the next three years and the remainder thereafter.

We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.

Restructuring Charges

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with the spin-off and in response to COVID-19.

These actions generally include severance and facility-related costs, including impairment of right-of-use assets, and are intended to improve our efficiency and profitability.

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with the spin-offs and other divestment activities.

These actions generally include severance and facility-related costs, including impairment of lease assets, as well as contract termination costs, and are intended to improve our efficiency and profitability.

Our restructuring-related activity was as follows:

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December 31, 2022

Brokerage and Other Services $ 7 $ 10 $ ( 12 ) $ 1 $ 6

North American LTL $ — $ 2 $ ( 3 ) $ 3 $ 2

European Transportation 6 6 ( 10 ) ( 1 ) 1

Corporate (1)

7 39 ( 9 ) ( 18 ) 19

Total severance 13 47 ( 22 ) ( 16 ) 22

Brokerage and Other Services 5 — ( 3 ) — 2

Total facilities 5 — ( 3 ) — 2

Contract termination

North American LTL — 3 ( 3 ) — —

Total contract termination — 3 ( 3 ) — —

Total $ 13 $ 50 $ ( 25 ) $ ( 16 ) $ 22

(1) For the year ended December 31, 2022, charges incurred and foreign exchange and other included the recognition of share-based compensation costs and the corresponding settlement of equity awards upon vesting in conjunction with the spin-off of RXO.

We expect the majority of the cash outlays related to the charges incurred in 2022 will be complete within twelve months.

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December 31, 2021

North American LTL $ 1 $ 4 $ ( 5 ) $ — $ —

Brokerage and Other Services 11 13 ( 17 ) — 7

European Transportation $ 6 $ 10 $ ( 11 ) $ 1 $ 6

Corporate 1 9 ( 2 ) ( 1 ) 7

Total severance 7 19 ( 13 ) — 13

Brokerage and Other Services — 6 — ( 1 ) 5

Total facilities — 6 — ( 1 ) 5

Total $ 7 $ 19 $ ( 13 ) $ — $ 13

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Buildings and leasehold improvements 406 357

Vehicles, tractors, trailers and tankers 1,825 1,791

Vehicles, tractors and trailers 2,054 1,806

Machinery and equipment 227 203

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Most of our leases are real estate leases.

In addition, we lease trucks, trailers, containers and material handling equipment.

In addition, we lease trucks, trailers and material handling equipment.

The components of our lease expense and gain realized on sale-leaseback transactions were as follows:

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$ 40 $ 69 $ 84

(1) For the years ended December 31, 2021, 2020 and 2019, we completed multiple sale-leaseback transactions for land and buildings, including a sale and partial leaseback of our shared-services center in Portland, Oregon in 2019.

(1) For the years ended December 31, 2022, 2021 and 2020, we completed multiple sale-leaseback transactions primarily for land and buildings.

We received aggregate cash proceeds of $ 49 million, $ 96 million and $ 143 million in 2022, 2021 and 2020, respectively.

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These operating leases will commence in 2023 with initial lease terms of 9 years to 15 years.

(In millions) North American LTL Brokerage and Other Services Total

(In millions) North American LTL European Transportation Total

Goodwill as of December 31, 2020 $ 726 $ 925 $ 1,651

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Goodwill as of December 31, 2021 726 868 1,594

Goodwill impairment — ( 64 ) ( 64 )

Impact of foreign exchange translation and other — ( 58 ) ( 58 )

Goodwill as of December 31, 2022 $ 726 $ 746 $ 1,472

As described in Note 2— Basis of Presentation and Significant Accounting Policies, we recorded an aggregate impairment charge of $ 64 million for the year ended December 31, 2022 related to reporting units within our European Transportation reportable segment.

There were no cumulative goodwill impairments as of December 31, 2021.

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Customer relationships $ 799 $ 392 $ 817 $ 347

We did not recognize any impairment of our identified intangible assets in 2021 and 2020.

We recorded a non-cash, pre-tax charge of $ 6 million in 2019 related to the impairment of customer relationships intangibles associated with exiting our direct postal injection business.

We did no t recognize any impairment of our identified intangible assets in 2022, 2021 and 2020.

Estimated future amortization expense for amortizable intangible assets for the next five years is as follows:

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The effect of derivative and nonderivative instruments designated as hedges on our Consolidated Statements of Income was as follows:

Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives Amount of Gain (Loss) Reclassified from AOCI into Net Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

Amount of Gain (Loss) Recognized in Other Comprehensive Loss on Derivatives Amount of Gain (Loss) Reclassified from AOCI into Net Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

Years Ended December 31,

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Total $ 27 $ 88 $ ( 98 ) $ — $ 7 $ ( 15 ) $ 7 $ 6 $ 9

The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was a loss of $ 1 million, a gain of $ 1 million and a loss of $ 9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

These amounts are recorded in Foreign currency (gain) loss on our Consolidated Statements of Income.

Cross-Currency Swap Agreements

1 unchanged sentence

The risk management objective of these transactions is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt.

In 2021, in preparation for the spin-off, we novated (or transferred) cross-currency swaps that were recorded as a liability with a fair value of approximately $ 28 million to GXO, as well as the associated amounts in AOCI.

In 2021, in preparation for the GXO spin-off, we novated (or transferred) cross-currency swaps that were recorded as a liability with a fair value of approximately $ 28 million to GXO, as well as the associated amounts in AOCI.

During the term of the swap contracts, we will receive interest, either on a quarterly or semi-annual basis, from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly or semi-annual basis, to the counterparties based on EUR fixed interest rates.

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We apply the simplified method of assessing the effectiveness of our net investment hedging relationships.

Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially

recognized in AOCI.

Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially recognized in AOCI.

The change in the fair value due to foreign exchange remains in AOCI and the initial component excluded from effectiveness testing will initially remain in AOCI and then will be reclassified from AOCI to Interest expense each period in a systematic manner.

For net investment hedges that were de-designated prior to their maturity, the amounts in AOCI will remain in AOCI until the subsidiary is sold or substantially liquidated.

Cash flows related to the periodic exchange of interest payments for these net investment hedges are included in Cash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.

Prior to the spin-off, we entered into cross-currency swap agreements to manage the related foreign currency exposure from intercompany loans.

During 2022, we received approximately $ 29 million related to the settlement of certain cross currency swaps that matured during the period.

The fair value adjustments related to these swaps remain in AOCI and partially offset foreign currency translation adjustment losses on our net investments in foreign subsidiaries.

The proceeds were included in Cash flows from investing activities of continuing operations on our Consolidated Statements of Cash Flows.

In 2021, prior to the spin-off of GXO, we entered into cross-currency swap agreements to manage the related foreign currency exposure from intercompany loans.

We designated these cross-currency swaps as qualifying hedging instruments and accounted for them as cash flow hedges.

Gains and losses resulting from the change in the fair value of the cross-currency swaps was initially recognized in AOCI and reclassified to Foreign currency (gain) loss to offset the foreign exchange impact in earnings created by settling intercompany loans.

Gains and losses resulting from the change in the fair value of the cross-currency swaps was initially recognized in AOCI and reclassified to Other income on our Consolidated

Statements of Income to offset the foreign exchange impact in earnings created by settling intercompany loans.

Cash flows related to these cash flow hedges was included in Cash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.

These swaps were re-designated as net investment hedges in the third quarter of 2021.

Interest Rate Hedging

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Cash flows related to the interest rate swaps are included in Cash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.

Foreign Currency Option and Forward Contracts

We periodically use foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the EUR or the British pound sterling as their functional currency.

Additionally, we periodically use foreign currency forward contracts to mitigate exposure from intercompany loans that are not designated as permanent and can create volatility in earnings.

Generally, the foreign currency contracts (both option and forward contracts) are not designated as qualifying hedging instruments.

The contracts are used to manage our exposure to foreign currency exchange rate fluctuations and are not speculative.

The contracts generally expire in 12 months or less.

We had no outstanding contracts as of December 31, 2021 and December 31, 2020.

Gains or losses on the contracts are recorded in Foreign currency (gain) loss on our Consolidated Statements of Income.

Cash flows related to the foreign currency contracts are included in Cash flows from investing activities of continuing operations on our Consolidated Statements of Cash Flows, consistent with the nature and purpose for which these derivatives were acquired.

December 31, 2022 December 31, 2021

(In millions) Principal Balance Carrying Value Principal Balance Carrying Value

ABL facility $ — $ — $ 200 $ 200

Term loan facilities $ 2,003 $ 1,981 $ 2,003 $ 1,977

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112 111 1,150 1,141

6.125 % Senior notes due 2023

6.75 % Senior notes due 2024

— — 1,000 989

6.25 % Senior notes due 2025

1,150 1,141 1,150 1,138

6.70 % Senior debentures due 2034

300 217 300 214

Borrowings related to securitization program — — 24 24

Finance leases, asset financing and other 223 223 239 239

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The fair value of the asset financing arrangements approximates carrying value as the debt is primarily issued at a floating rate, the debt may be prepaid at any time at par without penalty, and the remaining life of the debt is short-term in nature.

Our principal payment obligations on debt (excluding finance leases) for the next five years and thereafter was as follows:

Our principal payment obligations on debt (excluding finance leases and asset financing) for the next five years and thereafter was as follows:

(In millions) 2023

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In April 2019, we amended the ABL Facility including:

(i) increasing the commitments to $ 1.1 billion, (ii) extending the maturity date to April 30, 2024, subject to springing maturity if some of our senior notes reach specified levels set in the credit agreement and (iii) reducing the interest rate margin.

(i) increasing the commitments to $ 1.1 billion, (ii) extending the maturity date to April 30, 2024, subject to springing maturity if some of our senior notes

reach specified levels set in the credit agreement and (iii) reducing the interest rate margin.

In July 2021, we amended the ABL Facility to reduce the commitments from $ 1.1 billion to $ 1.0 billion.

There were no other significant changes made to the terms of the facility.

In connection with the spin-off of RXO, effective November 4, 2022, the commitments under the ABL Facility were reduced from $ 1.0 billion to $ 600 million with no further action by any of the parties thereto.

There were no other significant changes made to the terms of the facility at that time.

We can issue up to $ 350 million of letters of credit under the ABL Facility.

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A maximum of 20 % of our borrowing base can be equipment and rolling stock in the aggregate.

As of December 31, 2021, our borrowing base was $ 1.0 billion and our availability was $ 995 million after considering outstanding letters of credit of $ 5 million.

As of December 31, 2022, our borrowing base under the ABL facility was $ 472 million and our availability was $ 470 million after considering outstanding letters of credit of $ 2 million.

As of December 31, 2022, we were in compliance with the ABL Facility’s financial covenants.

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As of December 31, 2022, we were compliant with this financial covenant.

In February 2023, we amended our existing ABL Facility to, among other things:

(i) extend the maturity date to April 30, 2026 (subject, in certain circumstances, to a springing maturity if more than $ 250 million of our existing term loan debt or certain refinancings thereof remain outstanding 91 days prior to their respective maturity dates);

(ii) replace LIBOR-based benchmark rates applicable to loans outstanding with Secured Overnight Financing Rate-based rates;

(iii) reduce the sublimit for issuance of letters of credit to $ 200 million;

(iv) reduce the sublimit for borrowings in Canadian Dollars to $ 50 million;

(v) exclude real property from the collateral securing the obligations and (vi) make certain other changes to the covenants and other provisions therein.

The aggregate commitment of all lenders under the amended ABL Facility remains equal to $ 600 million.

Letters of Credit Facility

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In 2015, we entered into a Term Loan Credit Agreement that provided for a single borrowing of $ 1.6 billion.

We amended the Term Loan Credit Agreement in 2019 to include a new tranche of term loans (the “Incremental Term Loan Facility”), to reduce the interest rates and to extend the maturity dates.

Net proceeds from borrowings under the Incremental Term Loan Facility were used for general corporate purposes, including to fund purchases of our common stock described in Note 14—Stockholders’ Equity.

The loans under the Incremental Term Loan Facility were issued at a price of 99.50 % of par.

In 2021, we amended the Term Loan Credit Agreement to consolidate our tranches and lower the interest rate.

The applicable terms of the Term Loan Credit Agreement, as amended, are as follows:

December 31, 2020

(In millions) December 31, 2021 First Tranche Second Tranche

Principal balance $ 2,003 $ 1,503 $ 500

Interest spread:

Base rate loans 0.75 % 1.00 % 1.50 %

LIBOR loans 1.75 % 2.00 % 2.50 %

Maturity date February 2025 February 2025 February 2025

We recorded a debt extinguishment loss of $ 3 million in 2021 due to this amendment.

We have subsequently amended the Term Loan Credit Agreement to increase the principal balance to $ 2.0 billion, reduce the interest rates and to extend the maturity date to February 2025.

The interest rate spread is 0.75 % in the case of base rate loans and 1.75 % in the case of LIBOR loans.

We recorded a debt extinguishment loss of $ 3 million in 2021 due to an amendment.

The interest rate on our term loan facility was 5.93 % as of December 31, 2022.

We must prepay an aggregate principal amount of the term loan facility equal to (a) 50 % of any Excess Cash Flow, as defined in the agreement, for the most recent fiscal year ended, minus (b) the sum of (i) all voluntary prepayments of loans during the fiscal year and (ii) all voluntary prepayments of loans under the ABL Facility or any other revolving credit facilities during the fiscal year if accompanied by a corresponding permanent reduction in the commitments under the credit agreement or any other revolving credit facilities in the case of each of the immediately preceding clauses (i) and (ii), if such prepayments are funded with internally generated cash flow, as defined in the agreement.

commitments under the credit agreement or any other revolving credit facilities in the case of each of the immediately preceding clauses (i) and (ii), if such prepayments are funded with internally generated cash flow, as defined in the agreement.

If our Consolidated Secured Net Leverage Ratio, as defined in the agreement, for the fiscal year was less than or equal to 3.00 :1.00 and greater than 2.50 :1.00, the Excess Cash Flow percentage will be 25 %.

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As of December 31, 2022, our Consolidated Secured Net Leverage Ratio was less than 2.50 :1.00, and no excess cash payment was required.

In the third quarter of 2021, we redeemed our outstanding 6.125 % senior notes due 2023 (“Senior Notes due 2023”) and our outstanding 6.75 % senior notes due 2024 (“Senior Notes due 2024”).

The Senior Notes due 2024 were originally issued in 2019 and the proceeds were used to repay our outstanding obligation under the Unsecured Credit Facility described below and to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity.

The redemption price for the Senior Notes due 2023 was 100.0 % of the principal amount, plus accrued and unpaid interest and the redemption price for the Senior Notes due 2024 was 103.375 % of the principle amount, plus accrued and unpaid interest.

We paid for the redemption using cash received from GXO of approximately $ 794 million, proceeds from an equity offering described in Note 14—Stockholders’ Equity and available cash.

We recorded debt extinguishment losses of $ 3 million and $ 43 million in 2021 related to the redemption of the Senior Notes due 2023 and Senior Notes due 2024, respectively.

In January 2021, we redeemed our outstanding 6.50 % senior notes due 2022 (“Senior Notes due 2022”) that were originally issued in 2015.

The redemption price for the notes was 100.0 % of the principal amount, plus accrued and unpaid interest.

We paid for the redemption with available cash, including the net proceeds from the issuance of our 6.25 % senior notes due 2025 (“Senior Notes due 2025”) as described below.

We recorded a debt extinguishment loss of $ 5 million in 2021 due to this redemption.

In November 2022, we repurchased $ 408 million of the then $ 520 million outstanding 6.25 % senior notes due 2025 (“Senior Notes due 2025”) in a cash tender offer.

Holders of the Senior Notes due 2025 received total consideration of $1,022.50 per $1,000.00 principal amount of notes tendered and accepted for purchase, plus accrued and unpaid interest.

We paid for the tender using cash received from RXO in connection with its spin-off.

We recorded a debt extinguishment loss of $ 13 million due to this repurchase in the fourth quarter of 2022.

In April 2022, we redeemed $ 630 million of the then $ 1.15 billion outstanding principal amount of the Senior Notes due 2025.

The redemption price for the notes was 100 % of the principal amount plus a premium, as defined in the indenture, of approximately $ 21 million and accrued and unpaid interest.

We paid for the redemption using available liquidity.

We recorded a debt extinguishment loss of $ 26 million due to this redemption in 2022.

In 2021, we redeemed our outstanding 6.125 % senior notes due 2023 (“Senior Notes due 2023”), 6.75 % senior notes due 2024 (“Senior Notes due 2024”) and 6.50 % senior notes due 2022 (“Senior Notes due 2022”).

The redemption price for the Senior Notes due 2023 and Senior Notes due 2022 was 100.0 % of the principal amount, plus accrued and unpaid interest and the redemption price for the Senior Notes due 2024 was 103.375 % of the principle amount, plus accrued and unpaid interest.

We paid for the redemptions using available cash, net proceeds from a debt issuance and equity offering and cash received from GXO of approximately $ 794 million.

We recorded debt extinguishment losses of $ 51 million related to these redemptions.

In 2020, we completed private placements of $ 1.15 billion aggregate principal amount of Senior Notes due 2025.

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Senior Debentures

We assumed in conjunction with an acquisition 6.70 % Senior Debentures due 2034 (the “Senior Debentures”) with an aggregate principal amount of $ 300 million.

In conjunction with an acquisition, we assumed 6.70 % Senior Debentures due 2034 (the “Senior Debentures”) with an aggregate principal amount of $ 300 million.

The Senior Debentures bear interest payable semiannually, in cash in arrears, and mature on May 1, 2034.

Including amortization of the fair value adjustment recorded on the acquisition date, interest expense on the Senior Debentures is recognized at an annual effective interest rate of 10.96 %.

Trade Securitization Program

As discussed in Note 2—Basis of Presentation and Significant Accounting Policies, our European business participates in a trade receivables securitization program.

The program contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.

Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables.

These borrowings are owed to the program’s Purchasers and are included in short-term debt until they are repaid in the following month’s settlement.

We had no such borrowings outstanding as of December 31, 2021 and had borrowings of € 20 million ($ 24 million) as of December 31, 2020.

Unsecured Credit Facility

In December 2018, we entered into a $ 500 million unsecured credit facility (“Unsecured Credit Facility”).

As of December 31, 2018, we had borrowed $ 250 million under the Unsecured Credit Facility.

We borrowed an additional $ 250 million in January 2019.

We used the proceeds of both borrowings to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity.

In connection with the issuance of the Senior Notes due 2024 described above, we repaid our outstanding obligations under the Unsecured Credit Facility and terminated it in February 2019.

We recorded a debt extinguishment loss of $ 5 million in 2019 in connection with this repayment.

Employee Benefit Plans

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These pension plans include qualified plans that are eligible for beneficial treatment under the Internal Revenue Code and non-qualified plans that provide additional benefits for employees who are impacted by limitations on compensation eligible for benefits available under the qualified plans.

Prior to the spin-off of GXO, the pension plan for some employees in the United Kingdom was sold to a GXO entity and GXO paid approximately £ 26 million (approximately $ 34 million) to XPO, which represented the value of the net assets at the date of the sale.

In connection with this transaction, approximately $ 82 million of accumulated other comprehensive income, net of tax, was transferred to GXO.

We also maintain defined benefit pension plans for some of our foreign subsidiaries that are excluded from the disclosures below due to their immateriality.

The information below excludes the results of the pension plan that was sold to GXO.

We measure defined benefit pension plan obligations based on the present value of projected future benefit payments for all participants for services rendered to date.

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Interest cost 45 39

Actuarial (gain) loss ( 82 ) 216

Actuarial gain ( 453 ) ( 82 )

Benefits paid ( 93 ) ( 84 )

Projected benefit obligation at end of year $ 1,424 $ 1,925

The actuarial gain in 2021 was a result of assumption changes, including an increase in the discount rate, updated mortality projection scales and other assumptions for plan participants.

The actuarial gain in both 2022 and 2021 was a result of assumption changes, including an increase in the discount rate, updated mortality projection scales and other assumptions for plan participants.

The reconciliation of the changes in the fair value of plan assets as of December 31 was as follows:

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Actual return on plan assets ( 446 ) 25

Employer contributions 6 5

Employer contributions to non-qualified plans 5 6

Benefits paid ( 93 ) ( 84 )

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The actuarial loss included in AOCI that has not yet been recognized in net periodic benefit expense was $ 142 million and $ 43 million, respectively, as of December 31, 2022 and 2021.

The net periodic benefit cost and amounts recognized in Other comprehensive income (loss) for the years ended December 31 was as follows:

The net periodic benefit cost and amounts recognized in Other comprehensive loss for the years ended December 31 was as follows:

(In millions) 2022 2021 2020

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Net periodic benefit income $ ( 60 ) $ ( 61 ) $ ( 48 )

Amounts recognized in Other comprehensive income (loss):

Amounts recognized in Other comprehensive loss:

Actuarial (gain) loss $ 99 $ ( 7 ) $ 45

Reclassification of recognized AOCI gain due to settlements — — —

(Gain) loss recognized in Other comprehensive income (loss) $ ( 7 ) $ 45 $ ( 49 )

(Gain) loss recognized in Other comprehensive loss $ 99 $ ( 7 ) $ 45

The weighted-average assumptions used to determine the net periodic benefit costs and benefit obligations for the year ended December 31 were as follows:

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Our current investment strategy is to achieve an investment mix of approximately 90 % in fixed income securities and 10 % of investments in equity securities.

The fixed income allocation consists primarily of domestic fixed income securities and targets to hedge more than 95 % of domestic projected liabilities.

The fixed income allocation consists primarily of domestic fixed income securities and targets to hedge approximately 100 % of domestic projected liabilities.

The target allocations for equity securities includes approximately 50 % in U.S.

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The fair values of investments held in the qualified pension plans by major asset category as of December 31, 2022 and 2021, and the percentage that each asset category comprises of total plan assets were as follows:

(Dollars in millions) Level 1 Level 2 Not Subject

to Leveling (1)

(Dollars in millions) Level 1 Level 2 Not Subject to Leveling (1)

Total Percentage of Plan Assets

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Fixed income securities 296 966 48 1,310 88.9 %

Derivatives — ( 8 ) — ( 8 ) ( 0.5 ) %

Total plan assets $ 318 $ 958 $ 199 $ 1,475 100.0 %

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Fixed income securities 406 1,310 6 1,722 85.8 %

Derivatives — 1 — 1 — %

Total plan assets $ 453 $ 1,310 $ 246 $ 2,009 100.0 %

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Interest cost on projected benefit obligation 1 1

Actuarial loss — 4

Actuarial gain ( 9 ) —

Participant contributions 1 1

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Discount rate assumption as of December 31 5.40 % 2.67 %

The amounts included in AOCI that have not yet been recognized in net periodic benefit income (expense) and the net periodic benefit income (expense) for the postretirement plan were not material in any of the periods presented.

The amount included in AOCI that has not yet been recognized in net periodic benefit income (expense) was $ 9 million and the net periodic benefit expense was less than $ 1 million for the Postretirement Plan for the year ended December 31, 2022.

The amount included in AOCI that have not yet been recognized in net periodic benefit income (expense) and the net periodic benefit income (expense) for the Postretirement Plan were no t material for the year ended December 31, 2021.

The discount rates assumptions used to calculate the interest cost were 2.14 % - 2.79 %, 1.56 % - 2.34 % and 2.66 % - 3.22 % for the years ended December 31, 2022, 2021 and 2020, respectively.

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Stockholders’ Equity

Our Board of Directors is authorized to establish one or more series of preferred stock.

Series A Convertible Perpetual Preferred Stock and Warrants

In 2011, we issued 75,000 shares of the Series A Preferred Stock with an initial liquidation preference of $ 1,000 per share which were convertible into shares of our common stock at a conversion price of $ 7.00 per common share (subject to customary anti-dilution adjustments).

We also issued warrants exercisable for shares of our common stock at an initial exercise price of $ 7.00 per common share (subject to customary anti-dilution adjustments).

Our preferred stock ranked senior to our common stock with respect to dividend and liquidation rights.

Our preferred stock paid quarterly cash dividends equal to the greater of:

(i) the “as-converted” dividends on our underlying common stock for the relevant quarter and (ii) 4 % of the then-applicable liquidation preference per annum.

Our preferred stock was not redeemable.

In December 2020, some holders of our convertible preferred stock exchanged their holdings for a combination of our common stock, based on the stated conversion price, and a lump-sum payment that represents an approximation of the net present value of the future dividends payable on the preferred stock.

Additionally, some holders of our warrants exchanged (or committed to exchange subject to the satisfaction of certain customary closing conditions)

their holdings, including Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s chairman and chief executive officer, for a number of shares of our common stock equal to the number of shares of common stock that such holder would be entitled to receive upon an exercise of the warrants less the number of shares of common stock that have an approximate value equal to the exercise price of the warrants.

Share Issuance

In 2021, we completed a registered underwritten offering of 5.0 million shares of our common stock at a public offering price of $ 138.00 per share, plus an additional 750,000 shares of our common stock through an option granted to underwriters.

Of the 5.0 million shares, we offered 2.5 million shares directly and 2.5 million shares were offered by Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s executive chairman.

The additional 750,000 purchased shares were also split equally between us and JPE.

We received approximately $ 384 million of proceeds, net of fees and expenses, from the sale of the shares and used them to repay a portion of our outstanding borrowings and for general corporate purposes.

XPO did not receive any proceeds from the sale of shares by JPE.

Series A Convertible Perpetual Preferred Stock (“Preferred Stock”) and Warrants

Commencing the fourth quarter of 2020, holders of our Preferred Stock and warrants exchanged their holdings for our common stock or a combination of our common stock and cash.

These exchanges were intended to simplify our equity capital structure, including in contemplation of the GXO spin-off.

With respect to the Preferred Stock, through December 31, 2020, 69,445 shares were exchanged, and we issued 9.9 million shares of common stock and paid $ 22 million of cash.

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With respect to the warrants, in 2021, 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock.

These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment.

As of December 31, 2021, there were no shares of preferred stock or warrants outstanding.

Share Issuance

In July 2021, we completed a registered underwritten offering of 5.0 million shares of our common stock at a public offering price of $ 138.00 per share, plus an additional 750,000 shares of our common stock through an option granted to underwriters.

Of the 5.0 million shares, we offered 2.5 million shares directly and 2.5 million shares were offered by JPE.

The additional 750,000 purchased shares were also split equally between us and JPE.

XPO did not receive any proceeds from the sale of shares by JPE.

The warrants exchanged included holdings of JPE.

Subsequent to the exchange in 2021, there are no shares of Preferred Stock or warrants outstanding.

Share Repurchases

In December 2018, our Board of Directors authorized the repurchase of up to $ 1 billion of our common stock, which was completed in the first quarter of 2019.

The share repurchases were funded by our Unsecured Credit Facility and available cash.

In February 2019, our Board of Directors authorized additional repurchases of up to $ 1.5 billion of our common stock.

The 2019 authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations.

In February 2019, our Board of Directors authorized repurchases of up to $ 1.5 billion of our common stock.

Our share repurchase authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations.

We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.

The share purchases under this program have been funded by our available cash and proceeds from our 2019 debt offerings.

There were no share repurchases in 2021.

There were no share repurchases in 2022 or 2021.

Our remaining share repurchase authorization as of December 31, 2022 is $ 503 million.

Information regarding our shares repurchased, based on settlement date, in 2020 and 2019 were as follows:

Years Ended December 31,

(In millions, except per share data) 2020 2019

Shares purchased and retired 2 25

Aggregate value $ 114 $ 1,347

Average price per share $ 66.58 $ 53.41

Remaining authorization $ 503 $ 617

In 2020, two million shares were repurchased and retired at an aggregate value of $ 114 million, or $ 66.58 average per share.

The share purchases in 2020 were funded by our available cash and proceeds from our 2019 debt offerings.

Stock-Based Compensation

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These awards include stock options, restricted stock, restricted stock units, performance-based units, cash incentive awards and other equity-related awards (collectively, “Awards”).

As a result of the spin-off and in accordance with plan rules, the shares remaining for future issuance under the 2016 plan were equitably adjusted.

With this adjustment, up to 7.2 million shares of our common stock have been authorized for issuance as Awards.

As a result of the RXO spin-off and in accordance with plan rules, the shares remaining for future issuance under the 2016 incentive plan were equitably adjusted.

With this adjustment, and an amendment to the 2016 incentive plan approved by stockholders in May 2022 which increased the 2016 incentive plan’s number of authorized shares by 2.3 million shares, up to 11.4 million shares of our common stock have been authorized for issuance as Awards.

Shares awarded may consist of authorized and unissued shares or treasury shares.

The 2016 plan will terminate on May 15, 2029, unless terminated earlier by our Board of Directors.

As of December 31, 2021, 1.7 million shares of our common stock were available for the grant of Awards under the 2016 plan.

In connection with the spin-off, stock-based compensation awards that were previously granted to GXO’s employees and directors under XPO’s incentive plan were converted to awards issued under GXO’s incentive plan.

Additionally, in order to preserve the value of the awards held by employees continuing with XPO following the spin-off, the number of outstanding shares underlying the awards were adjusted using the ratio and methodology outlined in the EMA.

The ratio was based on the closing price per share of XPO common stock on July 30, 2021 compared to the closing price per share of XPO common stock on August 2, 2021.

The strike prices of options were similarly adjusted as outlined in the EMA.

The impact of these adjustments on the number of awards outstanding is included in the effect of spin-off activity in the tables below.

In May 2022, the stockholders also approved an amendment to the 2016 incentive plan to extend its term by three years so the 2016 incentive plan will terminate on May 18, 2032, unless terminated earlier by our Board of Directors.

As of December 31, 2022, 5.0 million shares of our common stock were available for the grant of Awards under the 2016 incentive plan.

In connection with the RXO spin-off, outstanding stock-based compensation awards that were previously granted under XPO’s incentive plan were adjusted with the intention of preserving the intrinsic value of the awards immediately before the spin-off.

XPO employees and directors holding awards in XPO stock received a number of similar awards either in XPO stock or a combination of XPO and RXO stock based on conversion ratios outlined in the EMA.

Generally, awards that were previously granted to RXO’s employees and directors under XPO’s incentive plan were converted to awards issued under RXO’s incentive plan.

For employees remaining with XPO whose awards will settle in only XPO stock, the conversion ratio was based on the closing price per share of XPO common stock on October 31, 2022 compared to the closing price per share of XPO common stock on November 1, 2022.

For employees remaining with XPO receiving a combination of XPO and RXO stock, the conversion ratio reflected a distribution ratio of one share of RXO common stock for every share of XPO common stock.

The modification of these awards in connection with the spin-off did not result in incremental compensation cost.

Our employee stock purchase plan offers eligible employees, excluding our executive officers and directors, the right to purchase our common stock up to 10 % of each employee’s compensation.

The impact of these adjustments on the number of XPO awards outstanding is included in the effect of spin-off activity in the tables below.

Additionally, we will not incur any future compensation cost related to equity awards held by RXO employees and directors, but we will incur future compensation cost related to RXO equity awards held by XPO employees.

Our employee stock purchase plan offers eligible employees, excluding our executive officers and directors, the right to purchase our common stock using up to 10 % of each employee’s compensation.

Shares are purchased at 5 % below fair market value on the last trading day of each six-month offering period.

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At December 31, 2022, two million shares of our common stock were available for purchase under the plan.

During the first quarter of 2023, the Compensation Committee of the Board of Directors approved the suspension of our employee stock purchase plan, effective after the March 2023 offering period is completed.

Our stock-based compensation expense is recorded in SG&A on our Consolidated Statements of Income:

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Stock Options

Our stock options typically vest over three to five years after the grant date for our employees and officers and one year after the grant date for our Board of Directors.

The stock options have a 10 -year contractual term and the exercise price equals our stock price on the grant date.

Our stock options typically vested over three to five years after the grant date for our employees and officers and one year after the grant date for our Board of Directors.

The stock options had a 10 -year contractual term and the exercise price equaled our stock price on the grant date.

A summary of stock option award activity for the year ended December 31, 2022 is presented below:

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Outstanding as of December 31, 2021 6,608 $ 9.80 0.93

42,755 $ 21.01 3.36

Exercised ( 10,519 ) 6.16

Forfeited — —

Effect of spin-off (1)

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NM - Not meaningful

(1) Outstanding awards at December 31, 2020 includes awards that were subsequently converted to awards issued under GXO’s incentive plan.

(2) The above table excludes stock option awards that were granted in 2021 that subsequently converted to awards issued under GXO’s incentive plan.

(3) Represents the net impact of (i) adjustments made to preserve the value of awards immediately before and after the spin-off, and (ii) the conversion of certain awards to awards issued under GXO’s incentive plan.

The intrinsic value of options outstanding and exercisable as of December 31, 2021 was less than $ 1 million.

The total intrinsic value of options exercised during 2021, 2020 and 2019 was $ 4 million, $ 56 million and $ 6 million, respectively.

The total cash received from options exercised during 2021, 2020 and 2019 was $ 2 million, less than $ 1 million and $ 1 million, respectively.

Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units

(1) Represents the net impact of adjustments made to preserve the value of awards immediately before and after the spin-off.

The total intrinsic value of options exercised during 2022, 2021 and 2020 was less than $ 1 million, $ 4 million and $ 56 million, respectively.

The total cash received from options exercised during 2022, 2021 and 2020 was less than $ 1 million, $ 2 million and less than $ 1 million, respectively.

Restricted Stock Units and Performance-Based Restricted Stock Units

We grant RSUs and PRSUs to our key employees, officers and directors with various vesting requirements.

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NM - Not meaningful

(1) Outstanding awards at December 31, 2020 includes awards that were subsequently converted to awards issued under GXO’s incentive plan.

(2) Represents the net impact of (i) adjustments made to preserve the value of awards immediately before and after the spin-off, and (ii) the conversion of certain awards to awards issued under GXO’s incentive plan.

(1) Outstanding awards at December 31, 2021 includes awards that were subsequently converted to awards issued under RXO’s incentive plan.

The total fair value of RSUs that vested during 2022, 2021 and 2020 was $ 46 million, $ 69 million and $ 64 million, respectively.

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The total fair value of PRSUs that vested during 2022, 2021 and 2020 was $ 8 million, $ 2 million and $ 8 million, respectively.

Of the outstanding PRSUs as of December 31, 2021, 1,700,480 vest subject to service and a combination of market and performance conditions, 283,764 vest subject to service and performance conditions and 21,991 vest subject to service and market conditions.

Of the outstanding PRSUs as of December 31, 2022, 846,546 vest subject to service and performance conditions, 178,465 vest subject to service and a combination of market and performance conditions and 14,112 vest subject to service and market conditions.

As of December 31, 2022, unrecognized compensation cost related to non-vested RSUs and PRSUs of $ 101 million is anticipated to be recognized over a weighted-average period of approximately 2.16 years.

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Federal $ ( 17 ) $ — $ 1

State 2 ( 1 ) ( 4 )

Foreign 9 5 12

Total current income tax provision $ 82 $ 53 $ 20

Total current income tax provision (benefit) $ ( 6 ) $ 4 $ 9

Federal $ 80 $ ( 10 ) $ ( 38 )

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Long-term capital loss — ( 42.4 ) —

Non-deductible goodwill impairment charge 5.2 — —

0.3 ( 5.0 ) 2.5

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(2) In the year ended December 31, 2021, the impact of “Other” on the effective tax rate was disproportionately high compared to 2020 and 2022 due to the low income (loss) from continuing operations before income tax provision (benefit) in 2021.

For 2020, “Other” is primarily comprised of 7.7 % of U.S.

Federal tax credits, 6.5 % of U.S.

Federal tax permanent adjustments, and 2.7 % of changes in valuations allowance.

For 2021, “Other” is primarily composed of ( 3.6 )% of U.S.

Federal tax credits and ( 1.8 )% of U.S.

Federal tax permanent adjustments.

Components of the Net Deferred Tax Asset or Liability

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Property and equipment ( 261 ) ( 223 )

Pension and other retirement obligations ( 6 ) —

Other ( 24 ) ( 27 )

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(In millions) Expiration Date 2022 2021

Federal net operating losses for all U.S.

(including those of minority owned subsidiaries)

2033 - 2037 (1)

Federal long-term capital loss carryforwards — 126

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Beginning balance $ 7 $ 9 $ 5

Additions for tax positions of the current period — — —

Additions for tax positions of prior years 1 — 5

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Reductions due to the statute of limitations ( 1 ) — —

Currency translation adjustment — — —

Ending balance $ 6 $ 7 $ 9

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the effective income tax rate as of the end of the year

$ 8 $ 17 $ 15

We could reflect a reduction to unrecognized tax benefits of up to $ 4 million over the next 12 months due to the statute of limitations lapsing on positions or because tax positions are sustained on audit.

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returns after 2011 are open under relevant statutes of limitations and are subject to audit.

Earnings Per Share

Earnings (Loss) Per Share

We compute basic and diluted earnings per share using the two-class method, which allocates earnings to participating securities.

The participating securities in 2020 and 2019 consisted of our Series A Convertible Perpetual Preferred Stock.

The participating securities in 2020 consisted of our Preferred Stock.

The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period.

Losses are not allocated to the preferred shares.

As discussed in Note 14—Stockholders’ Equity, we recorded a preferred stock conversion charge in December 2020 in connection with the conversion of our Series A preferred stock.

As discussed in Note 14—Stockholders’ Equity, we recorded a Preferred Stock conversion charge in December 2020 in connection with the conversion of our Preferred Stock.

The computations of basic and diluted earnings per share were as follows:

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Preferred Stock conversion charge — — ( 22 )

Series A preferred stock dividends — ( 3 ) ( 3 )

Preferred Stock dividends — — ( 3 )

Non-cash allocation of undistributed earnings — — ( 6 )

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Commitments and Contingencies

We are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of our business.

These proceedings may include claims for property damage or personal injury incurred in connection with the transportation of freight, claims regarding anti-competitive practices, and employment-related claims, including claims involving asserted breaches of employee restrictive covenants.

These matters also include numerous putative class action, multi-plaintiff and individual lawsuits, and administrative proceedings involving claims that our owner-operators or contract carriers should be treated as employees, rather than independent contractors (“misclassification claims”).

These lawsuits and proceedings may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest breaks, unreimbursed business expenses, penalties and other items), injunctive relief, or both.

We are involved, and expect to continue to be involved, in numerous proceedings arising out of the conduct of our business.

These proceedings may include claims for property damage or personal injury incurred in connection with the transportation of freight, environmental liability, commercial disputes, insurance coverage disputes and employment-related claims, including claims involving asserted breaches of employee restrictive covenants.

We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

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We carry liability and excess umbrella insurance policies that we deem sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company.

The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note.

In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.

Intermodal Drayage Classification Claims

Certain of our intermodal drayage subsidiaries are defendants in class action litigations brought by independent contract carriers in California who contracted with these subsidiaries.

In these cases, the contract carriers assert that they should be classified as employees, rather than independent contractors.

In two related cases pending in Federal District Court in Los Angeles , Alvarez v.

XPO Logistics Cartage, LLC and Arrellano v.

XPO Port Services, Inc.

, the Court has certified classes beginning in April 2016 and March 2013, respectively.

Plaintiffs allege that defendants exercised an impermissible degree of control over plaintiffs’ operations through the terms of the parties’ contracts and defendants’ policies, including enforcement of requirements imposed on motor carriers by state and federal law.

The particular claims asserted vary from case to case but generally include claims that, should the contract carriers be determined to be employees, they would be entitled to reimbursement for unpaid wages and/or minimum wage, unpaid wages for missed meal and rest periods, reimbursement of certain of the contract carriers’ business expenses (including fuel and insurance related costs), Labor Code penalties under California’s Private Attorneys General Act, and attorneys’ fees and costs associated with bringing the action.

Defendants mounted a vigorous defense on the merits of plaintiffs’ claims, including as to whether the plaintiffs met the applicable test for the threshold issue of employment classification.

Trial in both cases was scheduled to begin September 7, 2021.

In August 2021, the parties held a mediation at which a tentative settlement was reached in both actions.

Subject to the Court’s approval, we have agreed to pay the plaintiff class in the Alvarez case a total of $ 20 million, which includes all attorneys’ fees and other costs.

We have agreed to pay the plaintiff class in the Arrellano case a total of

$ 9.5 million, which includes all attorneys’ fees and other costs.

We accrued for both settlements in the third quarter of 2021.

Under the terms of both settlement agreements, we do not have to reclassify our contractors as employees and the plaintiff classes have agreed to release us from all liability from the inception of each respective class period through December 31, 2021.

All parties involved have agreed to dismiss all claims and counterclaims with prejudice, and the settlement agreements do not contain any admission of liability, wrongdoing or responsibility by any of the parties.

The Court granted preliminary approval of the settlements on October 8, 2021, and pursuant to the settlement agreements, the company provided the settlement funds to the third-party class administrators in December 2021.

On January 10, 2022, following a hearing, the Court granted final approval of the settlements.

Plaintiffs’ motions for attorneys’ fees and incentive awards have been taken under submission, so final judgment has not yet been entered, but the company currently expects distribution of funds to class members to occur in the first half of 2022.

Shareholder Litigation

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was filed in the U.S.

District Court for the District of Connecticut against us and some of our current and former executives, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act, based on alleged material misstatements and omissions in our public filings with the U.S.

Securities and Exchange Commission.

On June 3, 2019, lead plaintiffs Local 817 IBT Pension Fund, Local 272 Labor-Management Pension Fund, and Local 282 Pension Trust Fund and Local 282 Welfare Trust Fund (together, the “Pension Funds”) filed a consolidated class action complaint.

Defendants moved to dismiss the consolidated class action complaint on August 2, 2019.

On November 4, 2019, the Court dismissed the consolidated class action complaint without prejudice to the filing of an amended complaint.

The Pension Funds, on January 3, 2020, filed a first amended consolidated class action complaint against us and a current executive.

Defendants moved to dismiss the first amended consolidated class action complaint on March 3, 2020.

On March 19, 2021, the Court dismissed the first amended consolidated class action complaint with prejudice and closed the case.

On April 29, 2021, the Pension Funds filed a notice of appeal, and the appellate process is ongoing.

District Court for the District of Connecticut against us and some of our current and former executives, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act.

On March 19, 2021, the Court dismissed the complaint with prejudice, and on June 30, 2022, the U.S.

Court of Appeals for the Second Circuit affirmed the dismissal.

The case is now concluded.

Also, on May 13, 2019, Adriana Jez filed a purported shareholder derivative action captioned Jez v.

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District Court for the District of Delaware, alleging breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the Exchange Act against some of our current and former directors and officers, with the Company as a nominal defendant.

The Jez complaint was later consolidated with similar derivative complaints filed by purported shareholders Erin Candler and Kevin Rose under the caption In re XPO Logistics, Inc.

Derivative Litigation.

On December 12, 2019, the Court ordered plaintiffs to designate an operative complaint or file an amended complaint within 45 days.

On January 27, 2020, plaintiffs designated the Jez complaint as the operative complaint in the consolidated cases.

Defendants moved to dismiss the operative complaint on February 26, 2020.

Rather than file a brief in opposition, on March 27, 2020, plaintiffs moved for leave to file a further amended complaint and to stay briefing on defendants’ motions to dismiss.

The Court granted plaintiffs’ motion on July 6, 2020.

On April 14, 2021, the Court issued an order staying proceedings pending resolution of an appeal in the Labul action.

Plaintiffs stipulated that they will dismiss the shareholder derivative action with prejudice if the Labul dismissal is affirmed on appeal.

We believe these suits are without merit and we intend to defend the company vigorously.

We are unable at this time to determine the amount of the possible loss or range of loss, if any, that we may incur as a result of these matters.

The Jez complaint was later consolidated with similar derivative complaints.

On July 26, 2022, the Court issued an order dismissing the consolidated derivative complaints with prejudice.

The case is now concluded.

Insurance Contribution Litigation

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Under those agreements, Con-way agreed to indemnify the fronting carriers for damages assessed under the fronting policies.

Con-way’s captive insurer, Centron, was also a

named defendant.

After a seven-week jury trial in 2014, the jury found that Con-way and the fronting insurers never intended that the insurers defend or indemnify any claims against Freightliner.

Con-way’s captive insurer, Centron, was also a named defendant.

After a seven-week jury trial in 2014, the jury found that Con-way and the fronting insurers never

intended that the insurers defend or indemnify any claims against Freightliner.

In June 2015, Allianz appealed to the Oregon Court of Appeals.

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As any losses that may arise in connection with the fronting policies issued by defendant insurers ACE, Westport, and General are not reasonably estimable at this time, no liability has been accrued in the accompanying consolidated financial statements for those potential exposures.

California Environmental Matters

In August 2022, the Company received a letter from the San Bernardino County District Attorney’s Office, written in cooperation with certain other California District Attorneys and the Los Angeles City Attorney, notifying the Company of an investigation into alleged violations with respect to underground storage tanks, hazardous materials, and hazardous waste in California, and offering a meeting.

On October 20, 2022, the Company met with the County Attorneys and the Los Angeles City Attorney.

We are assessing the allegations and the underlying facts.

No discussion of potential monetary sanctions or settlement amount has occurred to date, nor can we reasonably estimate potential costs at this time.

Quarterly Financial Data (Unaudited)

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(In millions, except per share data) First

Quarter Second Quarter Third Quarter (2)

Fourth Quarter

Second Quarter Third Quarter Fourth Quarter (3)

Revenue $ 1,894 $ 2,047 $ 1,946 $ 1,831

Operating income 63 171 139 4

Income from continuing operations 63 113 21 126

Income (loss) from continuing operations 32 96 92 ( 36 )

Income (loss) from discontinued operations, net of taxes 456 45 39 ( 58 )

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Discontinued operations 456 45 39 ( 58 )

Net income (loss) attributable to common shareholders 115 156 ( 57 ) 122

Net income attributable to common shareholders 488 141 131 ( 94 )

Basic earnings (loss) per share:

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Discontinued operations 3.97 0.40 0.34 ( 0.50 )

Basic earnings (loss) per share attributable to common

Basic earnings per share attributable to common

4.25 1.23 1.14 ( 0.81 )

2 unchanged sentences

Discontinued operations 3.94 0.39 0.34 ( 0.50 )

Diluted earnings (loss) per share attributable to common

Diluted earnings per share attributable to common

4.22 1.22 1.13 ( 0.81 )

(1) The sum of the quarterly Net income (loss) attributable to common shareholders and earnings (loss) per share may not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective periods and because losses are not allocated to the Series A Preferred Stock in calculating earnings (loss) per share.

(2) The third quarter of 2021 included a litigation settlement charge of $ 29 million.

(1) The sum of the quarterly earnings (loss) per share may not equal year-to-date amounts due to differences in the weighted-average number of shares outstanding during the respective periods.

(2) Income from discontinued operations, net of tax during the first quarter of 2022 included the gain on the sale of our intermodal business of approximately $ 372 million.

(3) The fourth quarter of 2022 included a goodwill impairment charge of $ 64 million, transaction and integration costs of $ 42 million and restructuring costs of $ 35 million.

(In millions, except per share data) First

Second Quarter (3)

Third Quarter Fourth Quarter (4)

Quarter Second Quarter Third Quarter Fourth Quarter

Revenue $ 1,727 $ 1,873 $ 1,830 $ 1,772

Operating income (loss) 38 ( 101 ) 138 153

Operating income 61 120 65 66

Income (loss) from continuing operations 5 57 ( 13 ) 47

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1.02 1.38 ( 0.50 ) 1.05

(2) The first quarter of 2020 included transaction and integration costs of $ 37 million.

(3) The second quarter of 2020 included transaction and integration costs of $ 29 million and restructuring costs of $ 28 million.

(4) The fourth quarter of 2020 included a $ 22 million, or $ 0.22 per diluted share from continuing operations, preferred stock conversion charge that reduced income attributable to common shareholders from continuing operations for earnings per share purposes, but did not affect net income, associated with the December 2020 conversion of our preferred stock.

(1) The sum of the quarterly earnings (loss) per share may not equal year-to-date amounts due to differences in the weighted-average number of shares outstanding during the respective periods.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data